In August 2004 Pakistani officials stated that al-Libbi had become "number three" in al-Qaeda as "director of operations", a role once filled by Khalid Sheikh Mohammed.[6][7]

Upon al-Libbi's arrest on May 2, 2005, U.S. and Pakistani authorities continued to claim him as the third most important figure in al-Qaeda. According to the BBC and Voice of America (VOA) reports, he was riding pillion on a motorbike when he and his driver were ambushed by Pakistani agents, some of whom were wearing burqas. A VOA reporter from Mardan said that while being apprehended, al-Libbi tried to destroy a notebook, which U.S. agents took and have tried to decode.

US agents had been trying to find al-Libbi as a link to finding Osama bin Laden. After they intercepted a mobile phone call made by him, they targeted his location to a busy road a quarter of a mile away on the outskirts of Mardan, about 75 mi (121 km) northwest of Islamabad, and tipped-off Pakistani authorities. Plainclothes Pakistani agents arrived in Mardan and waited for him to arrive.

In the early reporting of this capture, there was confusion between the names and identities of Abu Faraj al-Libbi and another wanted al-Qaeda fugitive, Anas al-Liby.[10]Al-Libi is not a surname, but an adjective, meaning the Libyan. Such adjectives of nationality are used in nicknames, and sometimes to resolve ambiguity; they often have several alternative English transliterations.